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Global Monetary and Financial System

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How do you define the global monetary and financial system? What are the international and regional institutions that comprise the system? What role do these institutions play in promoting global business operations?

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This solution defines the global monetary and financial system, and describes the international and regional institutions that comprise the system.

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1. How do you define the global monetary and financial system?

The global monetary system can be defined in terms of its functions. A 'good' international (global) monetary system will (1) maximize the flow of international trade and investment and (2) lead to an 'equitable' distribution of gains from trade among the nations of the world. Nearly everyone agrees with the first of these functions of a monetary system; the second is more controversial. Suffice it to say, 'equitable distribution' here means little more than that every participant in the global monetary system should prosper or fail by the same rules, so that all things being equal, similar goods and services should carry roughly the same value no matter where they are produced or purchased in the world (http://www.csusm.edu/politicalscience/golich/money-module/elements.html).

On the other hand, the global financial system (GFS) is a financial system consisting of institutions and regulations that act on the international level, as opposed to those that act on a national or regional level (http://en.wikipedia.org/wiki/Global_financial_system).

2. What are the international and regional institutions that comprise the system?

The main players are the global institutions, such as International Monetary Fund and Bank for International Settlements, national agencies and government departments, e.g., central banks and finance ministries, and private institutions acting on the global scale, e.g., banks and hedge funds (http://en.wikipedia.org/wiki/Global_financial_system).

3. What role do these institutions play in promoting global business operations?

Each of these institutions play an important role in promoting global business operations. These roles include:

(a) The INTERNATIONAL MONETARY FUND (IMF) is an international organization that oversees the global financial system by observing exchange rates and balance of payments, as well as offering financial and technical assistance. Its headquarters are located in Washington, D.C., USA (http://en.wikipedia.org/wiki/International_Monetary_Fund). As reported on their website, the work or roles of the IMF is of three main types, with a fourth secondary role:

(i) ...

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